Welcome to professorsavings.com, we teach finance basics. Today we will teach you about 3 reasons to buy dividend stocks.
A dividend is a distribution of a portion of a company’s earnings to shareholders.
Professor Savings is considering investing in the stock market because he wants to grow his retirement portfolio while earning extra income at the same time.
He decides to buy stocks of companies that pay a dividend. Professor Savings knows that purchasing dividend-paying stocks carries several advantages.
First, dividends can give his portfolio a boost and cause his investing returns to increase. Dividends have historically contributed to the long-term return of the stock market. This means there’s potential to make money buying dividend stocks.
Secondly, dividends can help to reduce Professor Savings’ overall tax liability to the federal government. His dividend income will be taxed at a rate that’s less than his ordinary income tax rate of 33%.
Thirdly, this dividend income will help him to navigate the storms of a bear market. Dividend-paying stocks tend to offer income during the downturn.
Professor Savings knows that dividends can provide him cash to keep afloat when the stock market is sinking.
By investing in stocks that pay a dividend, Professor Savings is able to rest easy. He has added current income to his bank account and there is potential for the shares to rise in value.
The share prices of these stable dividend stocks may not grow as fast as a growth stock, but the incoming flow of dividend payouts makes up for the lower potential return.